After the elections, the "fiscal peace" ends, the "war" begins

Two days before the elections, the government also approved a decision to repeal unexecuted administrative measures for the period from January 1, 2015 to November 30, 2024.

Earlier, just before the elections, the government announced the "Fiscal Peace" initiative, which envisages the cancellation of tax liabilities accumulated for more than 10 years and the partial forgiveness of 5- to 10-year liabilities.

The initiative was not unexpected, as always before election periods, the government tries to make "peace" with business.

Albania has implemented such interventions from time to time, starting in 2008, when tax and customs arrears were forgiven until December 31, 2007, or in 2014 (when fines and late payment interest were forgiven for taxpayers who made principal payments until December 31, 2014, with the aim of formalizing tax debts and administrative forgiveness).

The repeated attempts in recent years for a fiscal and administrative amnesty for the declaration of unregistered profits have failed to become a reality, due to the constant opposition of financial institutions, forcing the government to "hide" the amnesty through fiscal peace.

Even this initiative did not avoid the constant debate about the moral damage caused by these types of movements, as it stimulates tax evaders and the concealment of obligations, as well as discourages regular taxpayers who have paid their obligations.

History confirms this concern. At the end of 2024, according to official Tax data, the balance of unpaid tax liabilities amounted to 162.5 billion lek, or about 1.6 billion euros, an increase of 4.7% compared to the previous year.

But the peace seems to have vanished immediately after the elections, before they even started. In its place was "war." Businesses report that inspections by labor and health inspectorates, which had subsided in recent months, have resumed with vigor.

The Tax Administration recently gained immediate access to information on registered vehicles, which will enable real-time data monitoring for the purpose of collecting tax debts, warning of an intensification of the process of forcible collection of liabilities.

It is no secret that Albania has a high level of tax evasion. The revenues that the government collects from taxes paid by businesses and individuals have been increasing in value year after year, but in relation to the size of the economy, they have fluctuated since 1998, in the range of 26-28% of GDP.

This level is much lower than the European Union average of 40% of GDP, or than other countries in the region (with the exception of Kosovo), which fluctuate at 34-40% of GDP.

The highest informality remains in the labor market, with income from social and health insurance not exceeding 6% of GDP, half the European average.

There are many ways to combat tax evasion, but neither war nor fiscal peace, which send opposing messages to taxpayers, are among them.

Strengthening tax administration through digitalization of the invoicing and financial reporting system increases transparency and reduces scope for evasion.

Also, expanding the taxpayer base, especially in the informal sector, and providing incentives for voluntary declaration, are effective tools.

Consistent legislation, a simplified system with few tax rates, easy declaration and payment procedures, and clear rules help reduce compliance costs for businesses and individuals. This makes it easier to comply with tax obligations and reduces the incentive for evasion.

The Government must also send a strong message against tax evasion and in favor of voluntary compliance with tax obligations by clearly and transparently showing how taxes are transformed into concrete and quality public services.

This requires that tax revenues be administered with efficiency, integrity and transparency, being directed towards improving infrastructure, health, education and social protection.

The higher the waste, through inefficient concessions, corruption in tenders, and allowing evasion, the stronger the "resistance" of businesses and individuals will be.

Only when citizens see that their tax contribution translates into real improvements in their lives will this increase trust in the state and reduce the motivation for tax evasion.

For now, the signs are that the "war" will continue until the "peace" of the next elections./ Monitor